Saturday, October 24, 2009

PBS's brilliant Frontline really needs to be commended for its work in exposing the causes of the financial crisis. In a time when we can question the motivations of many in the news media, Frontline is not pulling any punches and is clearly party-neutral with respect to identifying the culprits in this calamity.

This week's program, "The Warning," chronicles the efforts of Brooksley Born, then the new head of the Commodity Futures Trading Commission (CFTC), to gain approval in the late 1990s to regulate credit default swaps and other types of complex derivatives that were largely responsible for the recent financial system meltdown. Her efforts were thwarted, however, due to heavy opposition from Clinton's triad of senior financial advisors: Secretary of the Treasury, Robert Rubin, his Deputy Secretary, Larry Summers, and Fed Chairman, Alan Greenspan.

Thanks to documentaries such this, it becomes painfully clearer all the time that we simply don't learn from our mistakes. Even though Ms. Born's concerns were proven to be valid during the very time that Congress was holding hearings on her powers -- thanks to the trillion-dollar meltdown of Long-Term Capital Management, the then-darling of the hedge fund industry -- the CFTC's regulatory authority was never expanded, and now we all know the consequences. Making matters worse, Obama has put virtually the same team that opposed Ms. Born into powerful positions in his own administration. Is there any wonder why more than a year has passed since the meltdown and no financial reforms have been implemented?

Here's a little additional background to keep in mind as you watch the episode:

Prior to becoming Sec'y of the Treasury, Robert Rubin was the CEO of Goldman Sachs. Hank Paulson, Bush's last Treasury Secretary, was also the former CEO of Goldman Sachs. Goldman's power and influence in Washington are extensive! Predictably, Goldman Sachs was the largest contributor to the Obama campaign, and continues to be the most blatantly opportunistic firm on Wall Street with respect to taking advantage of the absence of regulatory reform.

Two of Rubin's disciples, Tim Geithner and Gary Gensler (also ex-Goldman), are now, respectively, Secretary of the Treasury and head of the CFTC, which, again, is the agency that should be regulating derivatives, but isn't.

Rubin moved on from the Treasury to Citigroup, which was one of the sickest of the sick in the meltdown, with the result being the U.S. government supplying $100 billion in emergency aid and taking a 34% equity stake.

Following Clinton's final term, Summers moved on to the presidency of Harvard, where he was embroiled in one controversy after another. He was ultimately ousted by the faculty through a vote of no confidence. Too bad they didn't act sooner, though, as Summers' recommendations regarding investments in derivatives cost the Harvard endowment over $1 billion.

Summers made over $5 million last year from Wall Street connections, supposedly for doing speaking engagements and consulting approximately one day a week. He is now Obama's senior financial advisor, and frequent mouthpiece on financial policy. (Follow my "Larry Summers" link on the right to read some of my additional thoughts about Summers).

Greenspan ultimately retired, with his reputation now in tatters. He admitted this year before Congress that many of his most fundamental beliefs concerning regulation and the self-correcting powers of the markets, upon which his key decisions as Fed chief were based, were simply wrong.

Watch "The Warning" and draw your own conclusions. I'm sure you can probably guess, however, how I feel about our current president surrounding himself with a cast of characters who were so toxic to our way of life, and who seem to be in no particular hurry to put fixes in place.

Also outstanding is this video timelime of the events that set the stage for the financial crisis. Again, big kudos to Frontline.

Sunday, October 18, 2009

The Republican Party, like our nation's founders, believes that government must be limited so that it never becomes powerful enough to infringe on the rights of individuals.

The Republican Party supports low taxes because individuals know best how to make their own economic and charitable choices.

The Republican Party is supportive of logical business regulations that encourage entrepreneurs to start more businesses so more individuals can enjoy the satisfaction and fruits of self-made success.

The Republican Party is committed to preserving our national strength while working to extend peace, freedom and human rights throughout the world.

I believe strongly in all of these principles, and yet, I have never voted for a Republican presidential candidate. (I haven’t always voted for the Democrat either, instead choosing to let my abstention speak for itself.) One would think that I would be easy game for the GOP, so why haven’t they been able to win me over? It’s not because their core principles are not brilliantly clear, sensible and powerful. Rather, it’s because Republicans never actually make their core principles the foundation of their platform, nor are they ever even able to achieve a unified vision of their platform across the various factions within their party.

The trouble with Republicans is not their passion for their core principles. It’s that they are usually even more passionate as individuals about something else, and they don’t know where to draw the line between beliefs about governance and beliefs about deeply personal life choices. What is especially unsavory to independent moderates about the conflation of these beliefs is that the personal beliefs that are most loudly proclaimed are often based on some form of intolerance, and they reek of hypocrisy in that they typically conflict with the core principles’ themes of individual responsibility, personal freedom, and limited government. Intolerance and hypocrisy also set you up to be a bad joke, as depicted in this video:

Rather than painting a clear picture of how legislation based on their core principles would create a better America, Republicans allow themselves to become fractured over issues concerning, for example, religion, abortion, gay rights, and in the case of Mitt Romney’s candidacy, whether they could accept a Mormon president, as if Mr. Romney’s faith mattered in the least to his potential job performance. Simply put, the Party has been a mess for a very long time, and it can only win the Oval Office when the Democrats hand it to them on a silver platter, as LBJ did with his aimless mishandling of Vietnam, as Carter did with his mishandling of the economy and our national defenses, and as Clinton did with his indiscretions, which elevated “moral values” to the #1 reason why people voted for George Bush in 2000. Winning by unifying against another’s weaknesses simply isn’t a sustainable long-term plan, because you have no strategy once the other guy is gone and you’re in control. You need a vision of your own, which is where core principles come into play. No principles, no identity. It’s that simple.

It took millions of independent moderates to put President Obama into office. I was among them. We all had our reasons for voting for him, but the lack of a good alternative was probably foremost. That, by no means, makes for a strong support base. Indeed, recent polls are showing that millions of independent moderates have withdrawn their support. Again, I am among them. This is going to open a door for Hillary in 2012 and for the GOP.

I believe that a healthy two-party system is critical, and that moderates need a voice within that system. Moderates are the swing vote, yet they are without a home. That needs to change, which is why I would like to see the Republican Party reform. If the GOP is going to become a viable alternative for moderates, it needs to have courage in its convictions and build a fortress around its core principles. Party members need to agree among themselves to shelve the social issues that ultimately divide the party and create an unacceptable environment for moderates. Accordingly, they need to develop a platform that focuses exclusively on matters concerning the prosperity, defense and welfare of the people. The GOP will never win if it is known as the anti-abortion, or anti-gay, or pro-prayer-in-school party. Certain right-wing factions within the Party would love such monikers, but they would be the kiss of death for the GOP. Party leadership needs to take control, purge intolerance from the agenda, and put the focus of the platform on the sound administration of the country. They need to go back to basics and stick to business. If they do, they might have a chance, and we might have an alternative for moderates.

Friday, October 9, 2009

Having endured dot-com mania and the housing/credit crisis, we’re all starting to get pretty good at recognizing the signs of a bubble: lots of hype, no sense of proportion, free-flowing accolades and unearned reverence, irrational behavior, and endless exhibitions of wretched excess. Certainly, some of these bubblelicious signs apply to our president.

I really don’t think President Obama has anguished over how to inflate his image and get himself placed on a pedestal, but that’s precisely where many people, especially those overseas, have placed him. His charisma and promise of hope have bought him a very low bar. I'm sure, upon honest reflection, most people would admit that there has been little objective evaluation of his work thus far. However, we reached a tipping point today. The gap between his image and his qualifications and actual results became too wide and clear to be denied. With his premature “winning” (as if he actually wanted it) of the Nobel Peace Prize today, I think the pitfalls of this leader-as-pop-icon situation that the public has created have finally hit home, even with many of his most devoted supporters. Especially coming on the heels of the IOC "malfunction" in Copenhagen, one can’t help but wonder if today may have been the top for Obama – just like NASDAQ at 5132.52 on March 10th, 2000 – and that it may be all downhill from here. Of course, the Right expressed plenty of outrage today about the win being undeserved. However, I think this eerie feeling that the Obama bubble has been pricked is what’s giving so many others more of a feeling of loss today, rather than outrage. Truly, it’s sad when bubbles finally burst.

I think the obvious-to-all absurdity of today’s award was a wake-up call. It reminds us that we need to be realistic in our expectations and rigorous in our evaluations. Moreover, it reminds us that people in lofty places (e.g., the Nobel judges) can make foolish decisions or ones that are motivated to serve their own political aims, and that the rest of us need to stay awake at the switch in order to detect when they do. President Obama and the rest of our politicians are only human. They have strengths and weaknesses like the rest of us, and as our public servants, we should treat them with respect and realize that they’ll never do everything perfectly. Importantly, however, as we do with employees in the workplace, we must also diligently monitor and evaluate their work, and hold them accountable for their actions. Questioning is not a sign of being unsupportive. It’s helpful, as we learn from it, and it’s essential if we want to be our very best.

With the bloom off the rose a bit now, maybe we can take some of the emotion, dogma, and tribal warfare out of this presidency and get down to the objective administration of this great republic. Today may have actually been an important turning point for the better.

U.S. National Debt Clock

About Me

Pat has nearly 30 years of experience as a financial executive. He is a CPA and holds an MBA from MIT's Sloan School of Management, where he was a Sloan Fellow. Pat's research interests include investments, financial markets, leadership and ethics, innovation and business sustainability, I.T. strategy, corporate governance, economics, politics, and globalization.